THE GAME OF WEALTH

Meet the cream of personal investment advisors. You needn't try to solicit their services unless you have at least $1 million to put in their care. By John C. P. King

SIX YEARS AGO, wealth manager Neil Nisker was faced with a dilemma. Many of his clients were clamouring to have him invest their money in the dot-com phenomenon. Nisker decided to take the well-worn path of his profession and refused to buy. It cost him heavily. “Half my clients left me,” Nisker says. It almost broke his business, because he had to sell too many promising stocks at a loss in an illiquid market.

It was the same story at Beutel Goodman & Co. Ltd.’s client group. The wealth management firm had exhibited strong first-quartile performance for the five years leading up to 1998 and the publicity caused a spike in new business. But the boom was short. When technology stocks took off in 1999 and Beutel wouldn’t participate, about a dozen major clients left. The tech bubble burst, proving the managers were correct. But Beutel still hasn’t fully recovered. The wealth division attracted $100 million in new private money last year alone, bringing its total assets under management to $1.1 billion. But that is about $150 million short of its 1999 high.

For Nisker, who personifies the qualities of today’s rare breed of wealth managers that quietly ply their trade on Bay Street, things are now looking up. His low-risk, no-nonsense approach to managing money is allowing the firm he works for, YMG Private Wealth Management Inc., to up its minimum client account balance to north of $2 million.

“Time is the currency of the future,” says Nisker, who serves a sprinkling of philosophy along with his strategic investment advice. “I’ve said no to people who offered us $1 million. If I speak to my clients once a month, how many clients can I possibly speak to? I want to give them all the time that they need.”

	{Name: Neil Nisker Age 52} Job: President, YMG Private Wealth Management, a division of YMG Capital Management Inc. Background: Spent a year at university, then joined his father’s stock brokerage as an assistant block trader. Mentored by some great investment leaders, such as John Templeton. One of three who managed Templeton’s private global equity mutual fund from 1990 to 1999. Created Nisker Associates Strategic Wealth Management in 1997 and sold it to YMG in 2000. Quote: “We believe if you invest in companies that are socially responsible, that are sustainable in the way they maintain their business practices, that they will end up being better investments.” Outside interests: Philanthropy; helping charities operate like businesses. Investment style: Growth at a reasonable price. Investment team: Don Conner, portfolio manager and chief investment officer; Carolyne Fowler, equities and fixed income portfolio manager. Private wealth assets under management: $425 million Three picks: Kingsway Financial, Alberto-Culver, RioCan REIT.
Photographs by Yuri Dojc

Kurt Rothschild is one of those clients. During his working life, Rothschild was a tremendous success as an electrical engineer and a businessman, but he knew little about investing. The national firm he started from scratch in 1961, State Contracting Group, put the wiring in such projects as First Canadian Place and the Metro Toronto Convention Centre. When Rothschild retired in 1987, to devote more time to philanthropy, he sold the company. Suddenly, he had millions of dollars in cash and he needed some serious financial advice.

Rothschild had always relied on his accountant and his friends. So he turned to them for help to manage the fruit of his lifetime’s work. They put him in touch with his first investment counsellor—not just a regular financial adviser, but one of a select group of Bay Street companies that manages portfolios for very wealthy clients.

There are a few dozen people who do this kind of work in Toronto, operating mostly from boutique offices connected to much larger firms. Many of the executives with discretion over such big family portfolios are certified financial analysts and were stockbrokers or chartered accountants before they rose to their elite positions. They are the cream of personal investment advisers, and you needn’t try to solicit their services unless you have at least $1 million to put in their care.

If one can put up enough money to attract their attention, these wealth managers can provide some benefits that are not available to investors with more modest holdings, who put their money in the hands of retail stockbrokers and mutual fund dealers. These advisers’ fees are significant—a minimum of $20,000 a year is typical to manage a $2-million segregated portfolio. But the fee structure is based on a percentage scale that declines as the number of millions in the account grows. That makes it much cheaper than if the money were invested, for example, in mutual funds.

The average management expense ratio on Canadian and global equity mutual funds was between 2.5 and three percent last year. Wealth managers frown on most mutual funds as too expensive. Their own management fees are much lower. Legg Mason Canada Inc., for example, charges a flat 1.25 percent annual fee on the first $1 million of assets and one percent on the next $1 million. Custodial arrangements cost another 0.2 percent on the first $2 million. The rates keep falling as the account size rises, and any assets over $10 million cost just 0.25 percent a year to manage, plus 0.08 percent for the custodian.

For that fee, which would add up to $74,100 a year on a $12-million account at Legg Mason’s rates, a rich investor can expect personalized service, a focus on tax avoidance (no unnecessary churning, which would trigger capital gains), an emphasis on long-term performance that does not risk precious capital, and the same level of confidentiality one would expect from their butler.

Keeping confidences is such a crucial element of a wealth manager’s service that many of the people interviewed for this article were reluctant to divulge much. “We keep such a low profile, and when business is good I don’t tempt fate. It’s risky, and I’m a person who doesn’t like risk. That’s the way we invest,” says Nisker.

Nisker and his two colleagues, Don Conner and Carolyne Fowler, handle 103 families and foundations, and they in turn have given YMG $425 million to manage. Competing wealth advisers, such as Beutel Goodman or Barrantagh Investment Management Inc., maintain about 100 clients each. But they all vie with one another for the limited very-high-net-worth business of some 1,000 families in Canada.

Rothschild, who is now “about 80,” still travels regularly between Toronto, New York City and Israel to see his three children, his grandchildren and his great-grandchildren, and to talk with his different investment advisers. He uses wealth managers around the world for their different strengths. “I don’t buy and sell stocks,” he says. “I leave it to counsellors to do this for me. And I pick my counsellors, rather than individual stocks and bonds.”

Just like a portfolio manager, Rothschild has learned the importance of diversification. “I don’t want to put all my eggs in one basket. A man may be good today and he may not be good tomorrow. He might be alive today and gone tomorrow. I’m invested in different outfits according to their specialties. Some are good in large-cap stocks, some are good in small-cap stocks. Some are good in precious metals and energy. And so I diversify.”

	{Name: Gregory Latremoille Age 58} Job: President, Private Client Group, Beutel Goodman & Co. Ltd. Background: Grew up in Montreal, considered engineering, became a chartered accountant. Started Beutel’s private client group in 1979. Quote: “A lot of people look for Canadian stocks and U.S. stocks. We don’t have to. There’s no foreign content restriction, unless it’s imposed by a client. We buy the best business in a category, whether it’s north or south.” Outside interests: Collects Canadian fine art. Investment style: Value, with a North American focus. Investment team: Stephen Clements, portfolio manager specializing in U.S. equity research; Steven Smith, focusing on client relationships. Private wealth assets under management: $1.1 billion Three picks: Prudential Insurance, Loblaw, Arc Energy Trust

Rothschild has become close friends with Nisker over the years, and they work together on Toronto’s United Jewish Appeal. They talk almost every day, which is unusual in investment counselling relationships. Greg Latre-moille, head of Beutel Goodman’s private client group, says that friendly social relationships “don’t tend to happen too often.” Someone who wants to monitor a portfolio daily and spends a lot of time on the phone with the manager can be perceived as difficult. “It’s not the kind of client we want,” Latremoille says frankly. (Continue..)

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